Robo-advisors is a new aspect in the growing fintech scene. Robo advisors can process a lot of information. It is an evolution of how advice was earlier given and how we believe advice will be given in the future. Other common names for robo-advisors include “automated investment advisor”, “automated investment management” and “digital advisory platforms”. Investors with little knowledge about finance have seen the development of robo-advisors with artificial learning and machine learning capabilities which is diminishing the role of human advisors.
It is basically a system in which a computer helps you in managing your investments. The advice given by the computer is generated by the algorithms which are set by the owner of the product for the client according to their needs. For example, some people need their investments to grow at a stable pace so they algorithms are set so the trigger for the investments and the assets in which the funds for that particular client don’t go into risky ones and rather goes into non-risky instruments for example index funds, commodities etc. On the other hand the clients who want to grow their investments faster and are willing to take risk and defined draw-down for their target for them the algorithms are set to trigger their buying to relatively higher beta instruments which are usually volatile in nature.
Robo-advisors are digital platforms that provide automated and algorithm-driven financial planning services with minimal to no human intervention. Through an online survey, a typical robo-advisor asks clients about their present financial condition and future goals and uses that data to provide advice and automatically invest client funds. Some robo-advisors offer live consultations, or you can connect to your investment accounts to see progress, make changes, or continue to pursue your goals. Many robo-advisors also offer access to a licensed Human Financial Planner, who can help prioritize your goals and make suggestions on how to achieve them.
As per the recent study there are about 500 robo-advisories in existence, with newcomers like Betterment and Wealth-front competing for market share against experienced companies like Vanguard, Charles Schwab, and BlackRock. Their primary selling point is that they offer a wide range of exchange-traded funds (ETFs) that covers a variety of regions and industries,allowing the mass population to invest at a moderate cost. Professional financial advisors may charge heavy annual management fees of at least one percent of assets under management whereas robo-advisors only charge a small fraction of one percent in fees and have low minimum beginning balance requirements.
There are dozens of robo-advisors in the market today. There are pure robo-advisory services as well as those that offer the option to speak with a human advisor with or without an additional fee. Because bots are automated, they can more easily avoid the conflicts of interest that can plague an advisor who might target investments that pay the highest fees. Robo fees can range from zero — if an investor has less than $10,000 to invest — to 0.89 percent on assets under $1 million, said Brett Hammond.
Author : Dr. Pranav Saraswat, Associate Professor